The Franchise Memorandum

A federal court in California recently granted the franchisor of the Jan-Pro franchise system summary judgment on wage-and-hour claims asserted by unit franchisees of its regional master franchisees, concluding that Jan-Pro did not employ the unit franchisees. Roman v. Jan-Pro Franchising Int'l, Inc., 2017 WL 2265447 (N.D. Cal. May 24, 2017). In assessing the unit franchisees’ joint employer claims, the court applied the test articulated by the Supreme Court of California in Martinez v. Combs, 231 P.3d 259 (Cal. 2010), which consists of three alternative bases to find an employeremployee relationship: (i) the exercise of control over wages, hours, or working conditions; (ii) the power to “suffer or permit to work” (i.e., possessing the knowledge of and power to prevent the work from occurring); or (iii) the existence of facts supporting a common-law employment relationship. A common-law employment relationship required evidence of control over day-to-day operations. The court found that the unit franchisees failed to raise a genuine dispute of material fact to prevent the court from ruling in Jan-Pro’s favor on all three potential bases.

The court considered the first and third bases together and found that the unit franchisees’ franchise agreements with their respective master franchisees did not create any rights for Jan-Pro vis-à-vis the unit franchisees. The court observed that the elements of control that the unit franchisees relied on concerned Jan-Pro’s right to set the policies of its master franchisees and were found in Jan-Pro’s contracts with its master franchisees. Next, the court found that Jan-Pro did not have the authority to stop the unit franchisees from working. Finally, the court also rejected an ostensible agency theory raised by the unit franchisees because they failed to proffer evidence that they believed that the master franchisees were agents of Jan-Pro. The only evidence in the record suggested that the unit franchisees were unaware of the franchisor’s existence.